05 Aug What we can learn from a family-owned business
The UK economy is built upon family-owned business and the strong family ties that make them successful. In 2014, the Institute for Family Business reported that 87% of private sector companies were family owned, equating to 3 million family companies trading in the UK. The IFB also reports that family-owned businesses employ 9 million people, and make up a huge 30% of the UK economy. These figures are testament to the strength of the family firm, and the dedication of the families that run them. In an era of digital transformation and intense global competition, businesses owned by families have proved that they are strong, flexible and adaptable. The wider business world could learn a lot from successful family-owned businesses.
Positive and Inclusive Business
From small family partnerships to global brands like UK-owned Dyson and JCB, family run companies share many common attributes. By design, they are built on strong bonds and more often than not, shared ethics. Each family member involved has a key part to play, and will often be a dedicated and trusted team member.
People who aren’t involved with a family-owned business may have misconceptions about the way they operate. The assumption that families do nothing but talk about work, or that they are more likely to fall out over tough decisions are popular fallacies. If you’re outside looking in, you might assume that there’s too much pressure on younger generations to become employed in the family firm. You might think that family-owned businesses are typically too conservative to scale up quickly. Or that they promote from within the family too readily.
In fact, this is what an unsuccessful family-owned business looks like. These attributes are not part of culture of the innumerable firms that have succeeded over generations. A successful family-owned business is agile, competitive and bankable.
Exceptional Cultural Fit
Achieving the right cultural fit is crucial for developing a workforce that gels as a productive unit. Shared values are a core aspect of cultural fit. As ‘millennials’ start to dominate the workplace, the actual way in which people work and collaborate is becoming more important. Employees want to feel responsible for collective success.
Family members working together are generally speaking, geared up to promote a positive workplace culture. When you employ people within a family, you all share the desire to strive for a common goal. And this can make the enterprise more inclusive and driven to succeed. Each individual cares about the success of the unit, often as much as they care about their own career achievements. Therefore this kind of familial bonding can be an ideal model to emulate. How can you achieve a cultural fit within your business that is as strong as a family unit working towards shared business success?
Retaining Your Team
Increasing employee retention is an important challenge for any growing business. In a family-owned business, employee retention is typically much higher than a business that is not majority-owned by family. Why is this? A family-owned business is generally set up with longevity in mind. They’re less likely to have a roadmap planned out that involves fast growth and then a company sell off. This means that not only are family members likely to stay on at the company for decades, but so will other employees. This is because of the security and stability a long running business offers. If you have effectively communicated your road map to your team and it is stable and growth focused, you are also likely to have high employee retention.
Employee retention rates will also improve if you develop skills. A parent/child management structured family-owned business is the perfect example of this. A parent passes down their skills and knowledge to the next generation, and so retained knowledge is par for the course. The skills that have been learned – and tirelessly perfected – are passed on organically to the next generation. That’s the reason so many craftsmen have formed long-standing firms, headed by mothers and fathers, and taken over by their children.
Beyond that, younger members have important opportunities to transform and modernise the business, and the guidance of the family unit helps to keep the business focused while that happens. So how can you emulate this? Initiating a mentoring programme, along with a talent management strategy is one way to pass on knowledge. This also allow the younger generation to implement latest practices such as digital transformation.
When families come together to run businesses, they are often their own marketing team and their own brand. The family will often be part of the brand story and be incorporated into all forms of marketing. A family-owned business also tends to operate locally at the outset. Infact, a weakness of UK family-run businesses is that they rarely enter the export market. A surprising 85% of family-owned business SMEs still don’t export at all.
This combination of starting out locally, and marketing family itself can embed companies deeply into local communities. This means social responsibility is pretty much a given since the firm has a hyper-local support network. As it grows, that local connection becomes a core part of its marketing strategy, and can lead to an increased focus on philanthropic activity.
Harvard Business Review noted in 2012 that family-owned businesses have a “long term orientation that traditional public firms often lack”. Long-term survival trumps short term gain, and it’s rare that a family business is founded with an exit strategy.
When it’s time for the older generation to pass on the business, the process of succession is important. Sometimes, succession happens naturally and in accordance with the family’s natural evolution. Other times, it will happen suddenly, when an older family member can no longer lead the business. Rather than focusing on the change of ownership, however it comes about, the key lesson is in the process of succession.
Longevity is extremely likely when the handover takes place with the support of the family . Family firms tend to have a strong sense of direction, which can help them to make good decisions, even when times are tough.
Family companies tend to grow more slowly than other types of business. One of the key reasons for this is an unwillingness to take on any financing that dilutes family ownership. However many British family-owned businesses have grown into giant corporations such as 2 Sisters Food Group, Laing O’Rourke and Stemcor. These examples prove that family-run companies do have ambitious expansion plans and can embrace financing for business growth without losing control of the business.
While external financing doesn’t necessarily mean relinquishing control of a business, if a family firm needs to bring in large amounts of external finance, it may need to dilute its ownership of the firm. This can be an opportunity to bring governance and skills into the business, along with renewed buying power. While this does present challenges for the family unit, if done correctly, it can give the business a boost in people skills, planning, diversity and much more.
When handled correctly, a so-called outsider can be part of a positive continuum of change. Often, bringing in an external voice can put the business into a wider context, and open up new supplier routes or stakeholder conversations.
That’s not to say that expansion is risk-free; some family owned businesses thrive without external funding. But often, extra funds can bring increased capacity and strength to a family-owned business, or indeed any business for that matter.
What Can We Learn?
Looking at the attributes of family-owned companies, we can see a series of proven strengths. There’s something about the model that lends itself to long-term success. In an age of quick exits and rapid company growth, there’s value in realising that long-term vision is just as important.
Likewise, we can see that the right people are critical, and family businesses are good at developing their corporate culture. By drawing from a pool of dedicated family members, the workforce is strengthened and aligned toward common goals. The family becomes known within its local community, strengthening its brand and its reputation in the wider world.
Financially, family-owned businesses are propping up our economy, and we shouldn’t underestimate just how valuable a contribution they make. When a family business needs investment, the entrepreneurial spirit is usually maintained, and the family unit continues to steer it towards success.
The one unique factor is the aspect of succession: no privately-owned businesses face this challenge. Yet here again, we can see that the process of succession is just as important as the people who are taking over the reigns. Like private businesses, family-owned firms are most likely to succeed when they have engaged in proper training, mentorship and career development plans. This means that the business evolves as naturally as possible.
Strength and Commitment
Across the globe, 90% of family-owned businesses are large enough to have company directors. And the majority of the directors in those companies have family ties. 81% say they “care deeply” about each other; 84% describe strong family pride and identity.
The trust and dedication that binds these people together should serve as inspiration to other businesses looking in from outside. From branding to financial strength, the family-owned business proves that being inclusive and dedicated is a sure route to prosperity.
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